The decision to partner with someone in a business is a big one. You want to learn about the person’s background as much as you can, in all ways. For example, you want to learn about your potential business partner’s previous experience, education, and finances. You want to learn more about how they’ve managed past businesses, if relevant, and whether or not they’ve ever dealt with financial difficulties that could carry over to your business.
You also want to make sure when you partner with someone that they’re a person you feel like you match well with. You’re going to be making big decisions together. While it can be advantageous to each have unique viewpoints and experiences you bring to the table, you want to be generally compatible with one another and have a similar view on the path forward.
The following is a guide to the basic things to know about business partnerships and how to set one up.
You’re organizing a company in a way that’s owned and sometimes may also be run by two or more people or entities, and the partners then also share in profits and losses.
In business, a partnership can include two or more parties. You make an agreement about how you’re going to operate your business. If you are looking to start your own business then try checking out how to start an llc in order to register your business.
You can form this legal relationship through a written agreement. Partners invest money in the business, and again, the partners will benefit from profits but also have to shoulder any losses.
A partnership usually registers in all the states where it’s going to do business, with every state having different types of partnerships you can form.
Sometimes partnerships include people who work in the business, or they can include partners with limited participation. There can also be partners with limited liability for debts the business has and any lawsuits that may be filed against it.
When you’re in a business partnership, it’s not a separate entity from the individual owners, which is one way it contrasts with a corporation. These business entities are more like working as a sole proprietor or independent contractor since the business isn’t separate from the individual for reasons of liability.
The partnership itself isn’t responsible for paying income tax. Profits and losses are divided among partners, and then each will pay income tax based on their individual tax return.
There are three types of partnerships most often set up.
The first is a general partnership, which is a situation where the partners participate in the day-to-day operations of running their business. They have liability as owners for lawsuits and debts under this situation.
In a limited partnership, there is at least one general partner. This general partner manages the business and takes on the liability for the decisions. Then, there’s at least one limited partner who doesn’t participate in business operations and doesn’t have liability.
A limited liability partnership provides legal protection from liability to all the partners. These might be formed by partners who work in the same professional category, such as lawyers and accountants.
There are partners who can be individuals, groups, companies, and corporations. There can also be junior and senior partners.
Partnerships are different from a limited liability company (LLC) because, in an LLC, the members are often shielded from personal liability for the company. Alternatively, in most partnerships, only the limited partners are protected from personal liability for the business.
According to Workspan, ecosystem business partners are increasingly realizing the value of working together through co-innovating and co-selling complementary solutions to bring greater value to their shared customers. The model is nearing a market value of $300B!
The following are some of the general steps to take when forming a partnership:
Other considerations when you’re setting up a partnership might include:
Finally, your business’s success or failure is going to depend a great deal on the partner you choose and the relationship you have with that person. Before you get into this life-changing relationship with someone, you should have a strategic plan in mind. This helps guide the type of person you want to work with. You want to know your vision and mission and your own strengths and weaknesses. You should also have an overview of your long-term goals. Once you feel comfortable with your own plan, then you will have something you’ll be able to present to potential partners to make sure they’re on a similar page.
You can review potential partners’ resumes as well. Their resume will help you see not only their work history but some of the things they consider their biggest accomplishments. You also want to learn more about someone’s weaknesses because hopefully, your strengths will account for these and vice versa.
Get to know a possible business partner on a deeper level so that you can gain insight into what their values are. Their personality is important, as much as we might not think business is personal.
Avoid someone who’s always speaking about themselves as a victim. If a potential partner constantly seems to have an excuse as to what things happen “to” them, they’re not the right person. You want a partner who’s willing to accept responsibility and learn from challenges and setbacks.
During this time, don’t share anything without having someone sign an NDA beforehand. This needs to be in place before you talk about even the simplest of details regarding your business. If you don’t use an NDA and you share something proprietary with would-be partners, they have every right to share it.
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